E-commerce in Germany to reach USD 93.12 B by 2023

At the end of 2018, the online retail industry in Germany was USD 71.97 billion dollar and is expected to register a CAGR of 5.29% to reach USD 93.12 billion dollar by 2023

Definition / Scope
Market Overview
Market Risks
Top Market Opportunities
Market Drivers
Market Restraints
Industry Challenges
Technology Trends
Regulatory Trends
Other Key Market Trends
Market Size and Forecast
Market Outlook
Technology Roadmap
Distribution Chain Analysis
Competitive Landscape
Competitive Factors
Key Market Players
Strategic Conclusion
References

Definition / Scope

Electronic commerce (e-commerce) is the marketing, buying and selling of merchandise or services over the Internet. It encompasses the entire scope of online product and service sales from start to finish.

E-commerce tools include computer platforms, applications, solutions, servers and various software formats manufactured by e-commerce service providers and purchased by merchants to increase online sales. While most people think of e-commerce as business to consumer (B2C), there are many other types of e-commerce.

These include online auction sites, internet banking, online ticketing and reservations, and business to business (B2B) transactions. Recently, the growth of e-commerce has expanded to sales using mobile devices, which is commonly known as ‘m-commerce’ and is simply a subset of e-commerce.

E-commerce is conducted using a variety of applications, such as email, online catalogs and shopping carts, EDI, the File Transfer Protocol, web services, and mobile devices.

This includes business-to-business activities and outreach, such as using email for unsolicited ads, usually viewed as spam, to consumers and other business prospects, as well as sending out e-newsletters to subscribers and SMS texts to mobile devices.

More companies now try to entice consumers directly online, using tools such as digital coupons, social media marketing and targeted advertisements.

The benefits of e-commerce include its around-the-clock availability, the speed of access, the wide availability of goods and services for the consumer, easy accessibility and international reach.

The rise of e-commerce has forced IT personnel to move beyond infrastructure design and maintenance to consider numerous customer-facing aspects, such as consumer data privacy and security.

When developing IT systems and applications to accommodate e-commerce activities, data governance-related regulatory compliance mandates, personally identifiable information privacy rules and information protection protocols must be considered.

Market Overview

German is Europe’s second largest e-commerce market, behind the UK and fifth largest e-commerce market in the world.The number of e-commerce consumers, internet penetration and average spent per year is above the European average.

In 2018 total sales are estimated to have reached USD 109.8 billion, which is a 10% growth compared to 2017. The estimated average spent online per person per year is USD 867. In 2018, Germany had an online population of 72.2 million people who were aged 15 and older.

The strong e-commerce market in Germany can be attributed to the considerable proportion of the population who own smartphones (nearly 80 percent). In 2017, retail sales conducted via mobile devices in Germany were worth an estimated USD 24 billion, 35 percent of this coming from retail e-commerce sales, with clothing, books, electronics and tickets being the most commonly purchased items.

This growth is likely to continue as retailers improve their mobile websites and provide even more convenient ways of shopping on mobile devices.

According to the retail industry body Handelsverband Deutschland (HDE), sales of fast-moving consumer goods (FMCG) and groceries posted some of the highest growth rates in 2018. Apparel remains the greatest contributor to overall retail e-commerce sales, however.

Online shoppers in Germany (60 million in 2018) are keen on using invoice, as it is their preferred online payment method. According to a 2017 survey almost six in ten online customers in Germany pay afterwards whenever they’ve ordered something online.

But it’s not only invoice that’s popular, 34% of the German customers use credit cards (MasterCard, VISA or American Express). Other online payment methods that are often used are PayPal, ELV, GiroPay, Sofort Überweisung , RatePay and cash on delivery.

Market Risks

Amazon has the strong hand over the large retail market. The US giant has already occupied almost half of the German’s online retail market which means the competition is very rough for startups and small online business.
Cyber Security is one of the major concern as e-commerce stores handles costumer’s personal data and a security breach can jeopardize the personal information of the customers resulting in loss of data.
Consumers are drawn to e-retailers who make the experiencing of browsing, shopping, discovering and ultimately purchasing efficient, pleasant and cost effective. The biggest issue for the e-retailer is to understand how customer gravitation is trending and adapt.
Economic stress or uncertainty is a constant risk in the online platform. Put simply, people spend less money when they’re not feeling confident about their incomes.

Top Market Opportunities

Venture capitalists are very much present in Germany, and it is said to be relatively easy to attract and obtain funding in Germany. If you have the idea and the technical expertise required to implement the idea, venture capitalists in Germany can help you get your business plan off the ground.
The way in which German consumers go online is increasingly shifting away from stationary computers to mobile devices. Fifty-three percent of all online users currently go online via mobile devices (including smartphones and tablets) – an increase of more than 20 percent compared to 2017 usage levels. So, mobile responsive and mobile friendly e-commerce has a great business opportunities to shine in German market.
Germany is one of the leading European markets for cross border trade and third most active country worldwide both in import and export e-commerce, third to only US and the UK. Germany is responsible for 15% of global cross- border sales. Cross-border e-commerce is offering retailers with a multi channel strategy huge business opportunities.
The German infrastructure is well developed with a concentrated network of logistics centers. This means that Germany performs best overall field of logistics compared to other European countries.

Market Drivers

High Internet Users

Germany’s population exists of 80.8 million of people, of which 89% uses internet. 51.6 million of these internet users shop online. On average online shoppers in Germany spent 1665.06 USD dollar at e-commerce websites.

Demographics

A new generation of consumers are reshaping the face of online shopping. Online shopping is widespread in Germany and not just younger member of the population. According to the survey, 85% of internet users aged between 25 and 44 years had shopped online within the past three months in Germany in 2017. This group values flexibility and transparency, and embraces new technology and services thus driving the growth in online retailing.

Strong economy

The economy of Germany is a highly developed social market economy.It has the largest national economy in Europe, the fourth-largest by nominal GDP in the world, and fifth by GDP (PPP). In 2017, the country accounted for 28% of the euro area economy according to the IMF. The GDP of Germany is continuing to increase in 2019 accounting 341 billion of euros, with a growth rate of 2.96% YoY and 41,426 euro GDP per capita.

Low Tax

Germany offers one of the most competitive tax systems of the big industrialized countries. For corporations the average overall tax burden is just below 30 percent. Significantly lower rates are available in certain German municipalities – up to ten percentage points less. The overall corporate tax burden can therefore be as low as 22.83 percent.

Germany provides an extensive network of double taxation agreements (DTA) ensuring that double taxation is ruled out, e.g. when dividends are transferred from a German subsidiary company to the foreign parent company.

Open and transparent markets

German law generally makes no distinction between German and foreign nationals regarding investments, available incentives or the establishment of companies.

The legal framework for foreign direct investment in Germany favors the principle of freedom of foreign trade and payment. There are no restrictions or barriers to capital transactions or currency transfers, real estate purchases, repatriation of profits, or access to foreign exchanges.

Market Restraints

The market is highly competitive, but the prices are among the lowest in Europe. On top of that advertising cost in Germany is more expensive than anywhere else. Low prices+high costs=low/no margin.
Antitrust authorities have lately put limit to online resale restrictions under scrutiny and enforce antitrust rules in e-commerce. Accordingly, there have been quite a few court judgments and antitrust authorities decisions, both in favour of and against such restriction, eg on: bags, sportswear, electronics, luxury cosmetics,software.

Industry Challenges

The German consumers are very demanding, and the service and customer support can expect a lot more customer contacts, than any other European country.
Germany has 28 marketplace as of today offering similar services. Lots of traffic, but standing out in the crowd, will require patience, competence and money.
Some of the large successful e-merchants in Germany, are traditional bricks and mortar companies, with strong physical representation. Clicks & Bricks simply mean, that if you have bricks (physical representation) you are more likely to receive clicks. Bricks create trust and trust generate clicks and e-commerce sales.
Online retailers may have visions and aspirations but one true fact remains, they need the right people to help them carry out their desires. Development opportunities also pose challenges and involve costs. Insufficient IT skills among the workforce are the greatest barrier to the use of digital technologies. These skills must first be developed within the enterprise, for example through further training or new hires.

Technology Trends

Personalization

Personalization is the biggest e-commerce technology trend. Consumers expect a personally-relevant shopping experience based on their preferences. Thus, online business are using programmatic advertising, customized landing pages, recommended products, loyalty programs and contextual shopping to anticipate customers’ needs and provide them with an intuitive shopping experience.

Artificial Intelligence

Artificial Intelligence (AI) and machine learning analytics drive customer behavior patterns, trends, and affinities, while interpreting this data, which is why businesses are provided with their customer’s desires and expectations, driving possibilities for extensive personalization.

Algorithms help customer segmentation and identification of patterns based on the customer’s browsing history. Companies using predictive analytics record sales figures 73% higher than those who have never used it.

Omnichannel

According to Google, 85% of online shoppers start a purchase on one device and finish on another. An omnichannel approach to commerce seeks to make transitions from one channel to the next seamlessly, providing the customers with a friction-free experience from search to receipt.

New payment options

Making different payment options available results in more conversions and sales, while new payment options such as mobile wallets add to the speed and simplicity offered to consumers. In-store mobile payment is expected to jump to $503 billion by 2020.

M commerce

E-commerce has recently shifted to mobile platforms to increase its prominence; as a result, m-commerce has emerged. Failing to provide a mobile-oriented shopping experience may lead to avoiding state; therefore, businesses should concentrate on equipping technologies with mobile-friendly virtues.

Automation and Chatbots for customer communications

Businesses are integrating Chatbots in their system to delight their customers and to improve brand image. Chatbots and virtual assistants are the future of any business. With the help of Chatbots one can order food, checking luggage at the airport, booking a hotel room, schedule flight and can get many recommendations regarding anything.

Regulatory Trends

Privacy and Data Protection

Data protection in Germany is governed by various laws and regulations on the federal and state level. If personal data is being processed by a private entity or the federal public sector, the federal legislation, in particular the Federal Data Protection Act (Bundesdatenschutzgesetz – BDSG), applies. Germany transposed the European Data Protection Directive 95/46 into national legislation which came into force on 23 May 2001.

Until now, Directive 2009/136/EC which, inter alia, contains provisions that are relevant for the use of “cookies” has not yet been transposed into German law. In addition, there are data protection regulations that apply to specific areas and that are contained in special laws which take precedence over general legislation. Examples include the German Banking Act (Kreditwesengesetz – KWG) and the Money Laundering (Prevention) Act (Geldwäschegesetz – GwG), the Telemedia Act (Telemediengesetz – TMG) and the Telecommunications Act (Telekommunikationsgesetz – TKG).

Consumer Protection

In Germany, various laws contain regulations that deal with consumer protection in the context of Ecommerce. In particular, the German Civil Code (Bürgerliches Gesetzbuch – BGB) as well as the Introductory Law to the Civil Code (Einführungsgesetz zum BürgerlichenGesetzbuch – EGBGB) transposes the European Directives on distance selling and distant selling of financial products into German law.

On June 13, 2014, the Law implementing the Directive on Consumer Rights (2011/83/EC) came into effect, amending several provisions of the German Civil Code and the Introductory Law to the Civil Code.

The Unfair Competition Act (Gesetz gegen den unlauteren Wettbewerb – UWG) includes rules on advertising while the Regulation on Price Quotations (Preisangabenverordnung – PAngV) regulates labeling and price indication.

Digital Signatures and Authentication

In 2001, the Law governing Framework Conditions for Electronic Signatures (Signaturgesetz – SiG) came into effect, transposing most of the regulations contained in the European Electronic Signature Directive 1999/93/EC into German law. In addition, the German Civil Code and the Regulation on Signatures (Signaturverordnung – SiGV) also include provisions that govern the use of electronic signatures.

Custom and Duties

If goods are imported from outside the EU, import duties may become due based on the tariff classification, customs value and origin of the goods. The customs/VAT warehousing procedure allows the storage of goods without such goods being subject to import duties (neither VAT nor customs duties are due).

Other Key Market Trends

Cross-border eCommerce remains strong. According to Landmark Global, Germany is responsible for 15% of global cross-border sales, with more than half of eCommerce buyers purchasing goods outside of Germany.

Countries that Germans like to buy from are the UK, the US, and China.

According to Marketing Sherpa, Germans are prone to return items a lot. This is because “open invoices” are a popular payment method, where they can receive an item first and then pay the invoice after a certain amount of time. If they simply don’t like the item upon arrival, they are happy to return without having to wait to be reimbursed.

Germans care about environmental issues and social responsibility. Marketing your brand along those terms can help attract more customers.

Omni-channel shopping is catching up in Germany, and mobile commerce is fast becoming the most used method.

Market Size and Forecast

The revenue in the German eCommerce market amounts to US $74,228m in 2018. The revenue is expected to show an annual growth rate (CAGR 2018-2023) of 8.8%, resulting in a market volume of US$104,138m by 2023.
The largest segment of the German e-commerce market is electronics and media. Their total value in 2018 is US$19,880m and will amount to approximately $23,3380 million in 2019.
The amount of users in 2018 will is 81.3% and is estimated that in 2023 this number will increase to nearly 85%.
The average revenue per user (ARPU) currently amounts to US$1,093.76.
It is estimated that the revenue on the e-commerce market in Germany in 2019 will be 76 478 million USD. Revenues from the e-commerce market in 2018-2023 will increase by approximately 30%.

Market Outlook

At the end of 2018, the online retail industry in Germany was valued USD 71.97 billion dollar and is expected to register a CAGR of 5.29% to reach USD 93.12 billion dollar by 2023.
Mobile internet retailing has already become an essential part of internet retailing and accounts for an increasing share. Over the forecast period, the importance of smartphones and tablets, however, will increase further as the boundaries between offline and online retailing are blurring.
Sales through mobile connections to the web are predicted to lead online retail growth. Mobile devices facilitate omnichannel shopping behaviors such as showrooming. The publication cites reports pointing out that more than one in ten online purchases is preceded by a visit to a physical store. This practice suggests that multi-channel merchants are well positioned to benefit from the continued trend toward E-Commerce, yet online retailers, led by Amazon.de, continue to dominate.
Apart from the product groups which are already well established in terms of internet retailing, such as apparel and footwear, consumer electronics and media products, there is still room for the growth of internet retailing in several other categories. Although the channel is projected to mature over the forecast period and post slower growth rates than during the review period, categories such as home and garden, consumer appliances and food and drink are expected to still offer plenty of room for growth

Technology Roadmap

Mobile Apps & eWallet Technology

Mobile apps integrated with mobile wallet functionality is the prime concern for e-commerce business to going forward. Because so many consumers shop online, they will probably prefer the mobile wallet to finalize the purchase.

Adding mobile wallet functionality can help online retailer increase their sales and boost their conversion rate. App shopping is more convenient for consumers and provides a more immersive environment for the market.

Subscription Services

Subscription services aren’t new. In fact, online subscription services have already impacted the eCommerce industry (for instance: Amazon Prime and Netflix). eCommerce technology trends indicate that personalized subscription services will continue to emerge as power players.

From fashion to entertainment, personal grooming, and even homemade meals — subscription services are becoming a common aspect of the digital retail industry.

Product Visualization, Augmented Reality, and Virtual Reality

Product visualization has changed dramatically over the past few years. Evolving from small, hard to view images to multiple images from different perspectives, the ability to zoom, customer uploaded images, etc. Even with these changes, recent technological advances in 3D, augmented reality, and virtual reality are poised to change the way products are visualized.

These eCommerce technology trends will impact the way consumers make decisions about products and services. Product visualization will become a bigger part of the digital retail environment in coming years.

Distribution Chain Analysis

Since E-Commerce is buying and selling of goods over the Internet, hence besides payment between the two parties, it is movement of goods that also needs to happen in a correct and timely fashion, hence the need of supply chain.

For businesses to boom in time of E-Commerce, supply chain becomes the most critical aspect which needs to be quick, un-interrupted and secure. The competition is fierce as there are not one or two but hundreds of E-Commerce firms fighting for market share, each identifying and developing unique selling and delivery strategies.

Consumers today want quick results, if they can order and have a good delivered at their doorstep today, they would not want to wait for 2 days to have it delivered; they would go with the firm that offers quick and hassle-free delivery.

E-Commerce works on a 2 way supply chain business from warehouse to consumer and consumer and back. Yes, E-Commerce firm offers the flexibility and scope to the consumers to return a product in case it’s faulty or not of their choice. This in-turn lead the companies to also plan and support a reverse supply chain of getting it back from the consumer to their warehouse

Competitive Landscape

Amazon, Otto and Zalando accounts for about 44% of total sales from the top 100 ecommerce players in Germany which represents a total value of almost 12 billion euros. With 8,1 billion euros worth of online sales in Germany (last year), Amazon takes the lead, followed by Otto (2,7 billion euros) and Zalando (1.1 billion euros). It’s no coincidence that the top 3 of online stores also act as a platform or market place, because their large customer base gives them a competitive advantage.
As internet retailing is driving overall growth in retailing in Germany and is an increasingly important channel, many store-based retailers are concentrating on improving their online presence. Most of the online business are switching to omnichannel strategy focusing not only on growing online sales but also on boosting store sales.
Germans tend to use the internet daily, with most users preferring to search for information using desktop computers or laptops rather than smartphones; including for online shopping. German consumers like choosing the delivery place instead of time slot, while PayPal is the favoured payment method.

Competitive Factors

The e-commerce has always been the competitive one as many giants company have already dominated the marketplace so, as to compete with them, one has to have a strong retailing and marketing plan to stay ahead. The retailer must need to know about the customer and their interest for your products. Online store can use analytics to get demographic data about your customer as well as social media accounts and look at the followers to get a better understanding of the customers.
German customers are often very price-sensitive. Consequently, price is an important competitive factor, but quality, timely delivery and service remain equally important, especially in B2B relations. In Eastern Germany, incomes tend to be lower and unemployment rates higher. Online sellers should accommodate cultural and historical differences by offering a variety of delivery, payment and return options.
As technology is evolving and there are lots of new innovation , the retailer need to Know about the latest technology and invest in those innovation , thus helping them to get ahead of the competitions.

Key Market Players

According to statistics from 2018, the ten largest online retailers in Germany are:

Amazon (USD 12,868 million)

Founded in the US in 1994, Amazon started as an online bookstore that later diversified to products including media, electronics, apparel, furniture, food, toys, and jewelry.

Having expanded to many countries, including Germany, Amazon has become the uncontested global leader of e-commerce and developed further into brick-and-mortar retail with the acquisition of Whole Foods Market, as well as publishing, electronics, cloud computing, video streaming, and production.

Otto (USD 3,555 million)

Otto is a mail order and e-commerce company, selling a wide array of products from furniture and home appliances to fashion, sports material and electronics. Founded in Germany in 1949, Otto has expanded to more than 20 countries in Europe, Asia, and America acquiring multiple brands including the French company 3 Suisses.

Having launched its online shop in 1995, Otto has become a key player for e-commerce in Germany and throughout Europe.

Zalando (USD 2,296 million)

Zalando is a German e-commerce company specialized in the online selling of fashion, shoes, beauty items, accessories, and sports items. Founded in 2008 by Rocket Internet, Zalando has expanded its operations to fifteen European countries and worldwide with spin-offs and subsidiary companies. Its largest shareholder is now the Swedish investment company Kinnevik.

Mediamarkt (USD 959 million)

MediaMarkt is a German multinational chain of stores specialized in the retail of consumer electronics. Founded in 1979, MediaMarkt has expanded to multiple countries of Europe and through its online platform, to become the world’s second-largest chain of consumer electronics, behind the American company Best Buy. It is owned with Saturn (see #8) by the MediaMarktSaturn Retail Group.

Lidl (USD 823 million)

Lidl is a multinational discount supermarket chain from Germany, providing groceries as well as a diversified array of products and services. Founded in 1930 and focusing on discount markets since 1977, Lidl now operates more than 10,000 stores in almost every European country and in the United States. It has also greatly expanded online through its own e-commerce activities.

Bonprix (USD 702 million)
Notebooksbilliger.de (USD 918 million)
Cyberport (USD 626 million)
Alternate (USD 586 million)
Conrad (USD 580 million)

Strategic Conclusion

The future belongs to businesses that understand the different touchpoints its customers are using. From traditional in-store purchases to purchasing behaviour driven by m-commerce, all German businesses need to move their marketing activity to encompass multiple channels – reflecting the fact that their customers have a presence across the physical and digital retail landscapes.

The commercial winners today and in the future will be businesses that understand online and offline marketing to be not different activities, but rather other facets of their relationship with customers, will be.

It is critical to all businesses within the German retail space that they recruit effectively to ensure they have marketers with the skills to understand today’s retail space – and how to craft engaging multi-channel marketing messages.